Retailers shift their ad spending from TV, radio and print ads to digital ads.
Small merchants are turning to the web as a b2b source of the goods they need to drive their companies.
Tracy True Dismukes, the owner of four Collage specialty apparel shops based in Birmingham, Ala., has seen her business rise steadily over the past two years as she has expanded on her niche of selling used designer clothing and accessories. Her shops, which sell goods mostly on consignment for individual sellers, have earned statewide recognition. “We were named Alabama Retailer of the Year by the Alabama Retailer Association and we’re not even a member of that organization,” she says, noting that she was nominated by a local Chamber of Commerce.
The popularity and success of her Collage shops lie in their unique offerings: like-new dresses, coats, purses and other items with labels like Gucci, Prada, Chanel, St. John and Anne Klein, all sold at one-third or less of the original retail price, Dismukes says.
Last August, she decided to open a fourth store that would extend Collage’s women’s apparel and accessories sales to include women’s plus sizes and men’s apparel. But that created a new challenge: sourcing goods that could suit her business model of selling like-new designer fashions sourced from individuals. “Plus sizes are harder to find,” she says. “Women who wear plus sizes usually hold on to their garments.” And with her shops having catered only to women’s fare until then, she figured she couldn’t rely on men as sources.
So as a former banker who had worked with online b2b marketplaces, Dismukes turned to the Internet. A colleague suggested she try Liquidity Services Inc.’s Liquidation.com, which auctions excess goods sold by large retailers. She discovered that she could acquire large lots of goods to quickly fill her newest store as well as add inventory to her other locations. Although it costs more to source goods from Liquidation.com, including shipping fees, she’s still able to factor in strong profit margins, she says. “We’ll at least double our money, even if I have to mark down prices,” she says.
Dismukes is among the small merchants who are turning to the web as a b2b source of the goods they need to drive their companies. They’re using the web to acquire the kind of buying clout and economies of scale more typically associated with large retailers. Big retailers have numerous options for using the Internet for buying, including comprehensive trading exchanges like the WorldWide Retail Exchange and GlobalNetXchange, which offer procurement and auction services to major merchants like Sears, Roebuck and Co. and Kmart Corp.
But small retailers, even with the gains made by merchants like Dismukes, lag as a whole in using the web for their b2b needs, despite ample opportunities, experts say. “We really intended to start OverstockB2B.com for small retailers who never had access to liquidation products before, but most of our business is with mid-size retail chains and a lot of big eBay sellers,” says Patrick Byrne, CEO of parent company and consumer merchandise site Overstock.com. “But the mom-and-pops can still play on OverstockB2B.”
The difficulties in getting small retailers to use services like Overstock include concerns that shipping costs could outweigh procurement savings or that they may be unlikely to find the right products in the right quantities. In many cases, small retailers simply don’t have the time to learn how to capitalize on Internet services, says Duif Calvin, a retail analyst based in San Francisco. “Mom-and-pop owners are probably already working 18 hours a day, so there’s little time to think outside their regular routine,” she says, noting that many family-owned business don’t bother with the web until a son or daughter joins the business after completing college.
Byrne notes that sales transactions at OverstockB2B doubled year-over-year for the 2003 fiscal year to about $60 million. But only 10% to 15% of those transactions involve mom-and-pop stores. The vast majority are mid-size retail chains and independent sellers on eBay Inc.’s eBay.com, Byrne says.
EBay also reports significant growth in the number of wholesale transactions, but with less participation by traditional small retailers than eBay would like, says Karl Wiley, eBay’s senior category manager for wholesale. It’s now offering 250 categories of wholesale products within its Wholesale Lots section, up from just 25 a year ago. The categories, covering everything from jewelry to auto parts, now account for more than 55,000 listings, up from 11,000 a year ago, Wiley adds.
Beyond spot buys
EBay’s Wholesale Lots section, which posted 465% year-to-year growth in second-quarter gross merchandise sales, is used by small and mid-size retailers as buyers as well as by a large number of individual marketers, or eBay Power Sellers, who buy and sell on eBay, Wiley says. EBay is determined to get more small traditional retailers to buy through its wholesale section, he adds. “Some small retail chains are using us opportunistically for spot buys, and we want to help them make that a longer term strategy,” he says.
Liquidation.com, Overstock and eBay are all taking steps to increase their wholesale transactions with small retailers. Liquidation.com, which notes that small and mid-size retailers account for about 40% of its buyers, is planning to attract more small retailers through a multi-pronged marketing and publicity campaign, says Asad Haroon, vice president of business development. “We need small retailers in order to have liquidity, to have a mass of people participating in our auctions to generate fair market prices,” he says.
OverstockB2B hopes to lure more small retailers with services ranging from credit card acceptance to health care policies, Byrne says. “The audience best served by OverstockB2B are small retailers, but they’ve been the slowest to pick it up,” he says. “But services we’re planning to offer in the first quarter of next year will make OverstockB2B more attractive to the mom-and-pop store.”
OverstockB2B has already begun working with Advanta Corp., a bank that specializes in offering commercial credit card accounts to small businesses. The plan is to provide OverstockB2B users with special offers on credit cards that could coincide with additional offers for health care insurance and procurement of office supplies for a retailer’s in-house use, Byrne says.